<PAGE>
Wanger Advisors Trust 1997 Annual Report
[WANGER 97 LOGO APPEARS HERE]
[SQUIRREL LOGO APPEARS HERE]
<PAGE>
Wanger Advisors Trust
1997 Annual Report
Contents
<TABLE>
<CAPTION>
<C> <S>
1 Squirrel Chatter
3 Funds at a Glance
4 Reflections on the Year
Wanger U.S. Small Cap
6 Reflections on the Year
Wanger International
Small Cap
8 Statement of Investments
Wanger U.S. Small Cap
12 Statement of Investments
Wanger International
Small Cap
16 Portfolio Diversification
Wanger International
Small Cap
17 Statements of Assets
and Liabilities
18 Statements of Operations
19 Statements of Changes in
Net Assets
20 Financial Highlights
Wanger U.S. Small Cap
21 Financial Highlights
Wanger International
Small Cap
22 Notes to Financial Statements
</TABLE>
Wanger Asset Management, L.P. ("WAM") is one of the leading global small-cap
equity managers in the U.S. with 28 years of small-cap investment experience.
WAM manages over $6 billion in equities and is the investment adviser to Wanger
U.S. Small Cap, Wanger International Small Cap, Acorn Fund, Acorn International
and Acorn USA.
WAM uses a unique style of catching trends with small, attractively-priced
niche companies. For more complete information about our funds including the
Acorn funds, fees and expenses, call WAM Brokerage Services, L.L.C.,
distributor, at 1-800-5-WANGER for a prospectus. Read it carefully before you
invest or send money.
[SQUIRREL LOGO APPEARS HERE] [WANGER 97 LOGO APPEARS HERE]
<PAGE>
Wanger Advisors Trust 1997 Annual Report
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[SQUIRREL LOGO APPEARS HERE] Squirrel Chatter--A Walk in the Park
You've certainly noticed the stock market has had bigger day-to-day swings than
it did a couple of years ago. A statistical study of the market shows that from
1992 to 1995 the U.S. stock market had unusually low volatility, but lately,
market volatility has moved to levels above the long-term average. How can you
manage your investments when the stock market gets wild?
The Random Romping of the Retriever
Last week I watched a lady walking her golden retriever in the park. The
dog romped all over the park. The dog chased a squirrel 50 yards to the north
(the squirrel was too smart for him and got away). Then the dog ran the opposite
direction to interview a little boy with an ice-cream cone. After that, another
dog showed up and they chased each other in circles for awhile. In ten minutes
the golden retriever had run a mile in all directions. If you tried to guess
where that dog was going to run next, it would be a very difficult forecasting
problem! You would have to know where every squirrel, child and dog was in the
whole park and then guess what the retriever's response would be. However, there
is a simpler way to solve this problem.
The dog's owner entered the park at the south entrance. She then walked 3
miles per hour down the sidewalk and left the park at the west entrance after 30
minutes. The dog came in with its owner and left with its owner. You know where
the dog started and where the dog ended up, even though for the half-hour in the
park the dog's motion was unpredictable. You can think about the stock market in
the same way.
If you read the morning newspaper or watch the stock market on TV, the
journalists will stress the short-term movements of the market in order to
deliver an exciting story (and it has been exciting recently!), but all they are
doing is recording the random romping of the retriever. However, if you
concentrate on the long-term basic economic trends that move smoothly and
steadily over multi-year time spans, you know where the lady is going and
therefore where the market dog will end up eventually.
So Where is the Lady Going?
The economy lady is affected by two big trends. First, inflation is dead.
Consumer Price Index (CPI) in the U.S. is being reported around 2%. This is just
as true in the rest of the world. Over the last 40 years, the poster boy for
inflation in Europe was Italy. This is why a plate of pasta in Pisa costs 17,000
lira. The latest CPI figures for Italy are 1.6%, lower than in the U.S. The same
dramatic drop in inflation has occurred in almost every other country. This
means that long-term bond rates will go down. Japan, which has had falling
prices over the last few years, has a long-term government bond rate that has
dropped below 2%. I don't think that the U.S. will get to 2%, but 5% is
plausible (the U.S. long-term bond rate is currently 5.9%). Why is inflation
dead? Over the very long-term, inflation has been associated with wars while
during peacetime, prices were stable. The cold war era (1945-89) counted as a
war because it forced the U.S. and other countries to spend trillions on
military preparedness.
A decade ago, many socialist economies were military threats but counted
for little in world trade. Russia, Eastern Europe, China, India and Argentina
made little of what the rest of the world wanted to buy (except arms), and
didn't have
(continued)
1
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Wanger Advisors Trust 1997 Annual Report
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[SQUIRREL LOGO APPEARS HERE] Squirrel Chatter--A Walk in the Park
enough hard currency to buy what the rest of the world wanted to sell. Now all
of these more-or-less ex-socialist countries are back in the economic world.
They have well-educated, motivated workers who are willing to work for a
fraction of U.S. or European wages. The cold war is over, we won, and inflation
has gone away.
A second great trend in the world is the privatization of pension schemes.
"Pay-as-you-go" funding for social security has many problems. The state systems
work only as long as the promised benefits are modest, and the pool of people
who "pay" grows at about the same rate as the people who "go." Unfortunately,
the promised benefits are in fact fairly extravagant, and the "go" pool is
growing while the "pay" pool is shrinking. Both politicians and would-be
pensioners are worried they will wake up one day to a giant sucking sound coming
from the benefits department of their national retirement administration.
This is why we believe that individually funded pension plans will replace
pay-as-you-go state run social security systems. Social security privatization
has been denounced as "radical," but lots of countries have made the switch.
Chile was first, followed by Argentina, Mexico, Australia, and the UK. The USA
has been running a large pilot program, in the form of your 401(k) or 403(b)
plan. The 401(k) system has been a big hit, partly by producing good investment
returns, and also by changing John Doe from the client of a bureaucracy into a
free citizen investing his money in a funded program.
These new pension plans will demand vast quantities of long duration, high
quality assets, so that bonds and high-grade stocks will be in strong demand.
Because these individually funded pension plans start off with buying big
company stocks, we have seen blue-chip indexes outperform small-cap stock
averages in the U.S. and the rest of the world, too. This relative price
movement against small-cap stocks has created an enormous disparity. The
valuation gap is now starting to close in the U.S.
Since May 1997, small-cap stocks have been at least matching the S&P 500
index. This trend change has not yet spread around the world, but it is likely
to. If this unfolds as we hope, the Wanger Small Cap portfolios will be
rewarding investments over the next several years.
Ralph Wanger
Chief Investment Officer,
Wanger Asset Management
[PHOTO OF RALPH WANGER APPEARS HERE]
Ralph Wanger
Chief Investment Officer
2
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Wanger Advisors Trust 1997 Annual Report
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Funds at a Glance
================================================================================
<TABLE>
<CAPTION>
Wanger U.S. Small Cap
Results to December 31, 1997
4th Last
quarter 12 months
<S> <C> <C>
Wanger U.S. Small Cap -1.7% 29.4%
Russell 2000 -3.4% 22.4%
S&P MidCap 400 0.8% 32.3%
S&P 500 2.9% 33.4%
Dow Jones 0.0% 24.9%
Net Asset Value per share as of 12/31/97 $21.46
</TABLE>
================================================================================
<TABLE>
<CAPTION>
Wanger International Small Cap
Results to December 31, 1997
4th Last
quarter 12 months
<S> <C> <C>
Wanger Int'l Small Cap -9.6% -1.5%
EAFE -7.8% 1.8%
Lipper International Small Cap
Funds Average -9.1% -0.3%
Lipper International Funds Average -7.7% 5.4%
EMI (World ex-U.S.) -10.3% -9.4%
Net Asset Value per share as of 12/31/97 $17.05
</TABLE>
The Russell 2000 is formed by taking the 3,000 largest U.S. companies and then
eliminating the largest 1,000 leaving a good small company index. The S&P MidCap
400 is a market value-weighted index of 400 U.S. stocks that are in the next
tier down from the S&P 500. The S&P 500 is a broad market-weighted average of
blue-chip U.S. companies. The Dow Jones Industrial Average includes 30 large
U.S. companies. All indexes are unmanaged and include reinvested dividends.
EAFE is Morgan Stanley's Europe, Australasia and Far East Index, an unmanaged
index of companies throughout the world in proportion to world stock market
capitalization, excluding the U.S. and Canada. The Lipper Int'l Small Cap Funds
Avg. is calculated from the performance of a group of small-cap int'l funds. For
the 4th qtr. and 12-mos. periods above, the group consisted of 48 and 29 funds,
respectively. The Lipper Int'l Funds Avg. is an average of all int'l funds
tracked by Lipper, excluding the Int'l Small Cap Funds Avg. This group consisted
of 484 and 421 funds for the 4th qtr. and 12-mos. periods above, respectively.
The EMI is Salomon Brothers' index of the bottom 20% of institutionally
investable capital of countries, as selected by Salomon, excluding the U.S. All
indexes are unmanaged and returns include reinvested dividends.
================================================================================
<TABLE>
<CAPTION>
Wanger U.S. Small Cap Top 5 Industries
As a % of net assets, as of 12/31/97
<S> <C>
Information 27.1%
Energy/Minerals 18.3%
Finance 14.4%
Industrial Goods/Services 11.6%
Health Care 11.0%
</TABLE>
================================================================================
<TABLE>
<CAPTION>
Wanger International Small Cap Top 5 Countries
As a % of net assets, as of 12/31/97
<S> <C>
United Kingdom 18.7%
Japan 9.0%
Italy 7.1%
Singapore 6.8%
Sweden 6.6%
</TABLE>
================================================================================
<TABLE>
<CAPTION>
Wanger U.S. Small Cap Top 10 Holdings
<S> <C>
Lincare Holdings 5.2%
Home Health Care
Services
Coast Savings 4.1%
California Savings & Loan
CalEnergy 3.6%
Power Plants
First Health Group 3.3%
PPO Network
Host Marriott 3.2%
Fast Food Kiosks
in Airports
Kronos 3.1%
Time Accounting
Software & Clocks
Tesoro Petroleum 3.1%
Oil Refinery/Gas Reserves
RCN Corporation 3.0%
Metro Market-Voice,
Video & Data Services
Wackenhut 2.9%
Prison Management
Acceptance Insurance 2.6%
Crop Insurance
</TABLE>
================================================================================
<TABLE>
<CAPTION>
Wanger International Small Cap Top 10 Holdings
<S> <C>
Mapfre Vida 5.8%
Life Insurance/
Mutual Funds-Spain
Autogrill Finanziari 3.5%
Tollway Restaurants-Italy
Oriflame 3.4%
Natural Cosmetics Sold
Door-to-Door-United Kingdom
Li and Fung 3.2%
Sourcing of Consumer
Goods-Hong Kong
Kempen 2.7%
Stock Brokerage/Investment
Management-Netherlands
Tyndall Australia 2.7%
Money Management/
Insurance-Australia
St. James Place Capital 2.5%
Life Insurance-
United Kingdom
TT Tieto 2.3%
Computer Services/
Consulting-Finland
Seton Healthcare Group 2.3%
Pharmaceuticals-
United Kingdom
Athens Medical Center 2.3%
Hospitals-Greece
</TABLE>
- -------------------------------------------------------------------------------
The funds' top 10 holdings and portfolio diversification vary with changes in
portfolio investments. See the Statements of Investments for complete lists of
the funds' holdings, including those described under "Reflections on the Year."
3
<PAGE>
Wanger Advisors Trust 1997 Annual Report
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Reflections on the Year Wanger U.S. Small Cap
Wanger U.S. Small Cap rocked the small-cap world in 1997. Your Fund's +29.4%
return in dollars (+201% in Indonesian rupiah!) handily beat the Russell 2000
small-cap index (+22.4%) and Lipper's small-cap mutual fund average (+20.8%).
Our precocious portfolio acted more like an adult-cap last year, outperforming
the Dow (+24.9%) though still trailing the jumbo-cap S&P 500 (+33.4%).
We had a lot of stocks go up and very few go down. Twenty stocks made over
$1 million, while only two lost over a million. Group of the year honors went to
our cable television stocks. In 1996, paranoid investors fled from cable,
fearing digital satellite TV would zap cable TV into extinction. But the cable
doubters must have forgotten that sky TV remains expensive and unable to carry
most local channels. The dreaded extraterrestrial satellite invasion of 1997
never made it out of the X-Files. Instead, cable companies snatched more viewer
bodies, raised rates and roused their stocks. Our own able cable guy, Chuck
McQuaid, loaded up on top flight cable providers (Cablevision) and programmers
(United Video, Liberty Media) and made us a mint.
One of our major investing themes is the worldwide growth of outsourcing.
More corporations and governments are focusing only on what they do best and
outsourcing the rest to specialists. Last year this theme paid off. The stocks
making it into our million-dollar club were Host Marriott (airport food
concessions), Wackenhut (privatized prisons), Lincare (home health care
services), and Applied Industrial (industrial component warehousing).
Our two best stocks soared on news of their corporate metamorphoses.
Coast Savings, our lone banker, announced it will be acquired by a fellow
California thrift, H.F. Ahmanson, which itself is likely prey in today's bank-
eat-bank world. C-Tec split itself into three new communications companies (RCN
Corp., Commonwealth Telephone, and Cable Michigan), gaining over $4 million for
the year. Another winner, Royal Caribbean Cruises, rose a titanic 102% last year
as more middle-aged middle-Americans vacationed afloat.
Our only big loser last year was CalEnergy (operates power plants), with a
- -16% return. The good news on CalEnergy: 85% of its business is not in
Indonesia. The bad news: 15% is.
We live in the Golden Age of Free Trade, when economic events happening a
hemisphere away can ruin or save the day for any company, be it the largest
multinational lender or the smallest domestic manufacturer. Recently, the
sound of Asian economies toppling like dominoes has left Wall Street dis-
Oriented. This volatility may wrack your nerves, but it also creates
opportunities. Rational, efficient markets are filled with fairly priced stocks;
emotional markets offer up bargains. Here's to more bargains in 1998.
[PHOTO OF ROBERT A. MOHN APPEARS HERE]
Robert A. Mohn
Lead Portfolio Manager
Wanger U.S. Small Cap
4
<PAGE>
Wanger Advisors Trust 1997 Annual Report
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[SQUIRREL LOGO]
Wanger U.S. Small Cap Results to December 31, 1997
- --------------------------------------------------------------------------------
The Value of a $10,000 Investment in
Wanger U.S. Small Cap
Total Return for Each Period
May 3, 1995 through December 31, 1997
Wanger U.S. Small Cap
<TABLE>
<CAPTION>
Wanger U.S. Small Cap Russell 2000 % on graph axis
--------------------- ------------ ---------------
<S> <C> <C> <C>
5/3/95 $10,000 $10,000
6/30/95 $10,770 $10,519 +7.7%
9/30/95 $12,060 $11,558 +12.0%
12/31/95 $11,600 $11,808 -3.8%
3/31/96 $13,297 $12,411 +14.6%
6/30/96 $15,351 $13,031 +15.5%
9/30/96 $15,792 $13,076 +2.9%
12/31/96 $17,004 $13,756 +7.7%
03/31/97 $16,366 $13,044 -3.8%
06/30/97 $19,093 $15,159 +16.7%
09/30/97 $22,395 $17,415 +17.3%
12/31/97 $22,005 $16,830 -1.7%
</TABLE>
Wanger U.S. Small Cap
$22,005
Russell 2000
$16,830
- --------------------------------------------------------------------------------
This graph compares the results of $10,000 invested in Wanger U.S. Small Cap on
May 3, 1995 (the date the Fund began operations) through December 31, 1997, with
the Russell 2000 with dividends reinvested. The beginning date of the Russell
2000 is as of May 31, 1995. The performance data quoted is past performance and
does not guarantee future results. The investment return and principal value of
an investment will fluctuate so that investors' shares, when redeemed, may be
worth more or less than their original cost.
Average Annual Total Return
1 year: 29.4% Life: 34.4%
5
<PAGE>
Wanger Advisors Trust 1997 Annual Report
- --------------------------------------------------------------------------------
Reflections on the Year Wanger International Small Cap
The many world stock markets had both good and bad results in 1997:
1. The US market was very strong, with the S&P 500 up 33%.
2. European stock markets were up similarly in their local currency, but the
dollar was strong, so currency losses on European stocks reduced the gains.
3. In Asia, a spectacular collapse buried the markets. Asian stocks and
currencies both plunged, mostly in the fourth quarter.
4. Blue-chip outperformed small company stocks in the US, UK, France, and
Japan. The Salomon EMI (World ex-US) Index of small companies was down 9.4%
for the year, while EAFE (big companies) was up 1.8%.
In this treacherous environment, we ended the year down 1.5%, better than the
Salomon EMI (World ex-US) Index, but disappointing.
The fourth quarter was the culprit. We made money for the first nine
months, but then the Asian contagion finally caught up with Singapore and Hong
Kong, and the fund lost 9.6% in the final quarter.
Although we managed to sell out of Korea, Indonesia, Thailand, and Malaysia
completely before the bulk of the damage there was done, Asia still produced
some big losers for the portfolio. Japanese photo processor Nihon Jumbo,
Philippine casino operator Mondragon, and Hong Kong theater manager Golden
Harvest all lost more than 50%.
As one would expect, our big winners were European stocks. We more than
doubled our money on Greek hospital manager Athens Medical Center,
UK retailer Electronics Boutique, and Dutch money manager Kempen.
At this time, small company stocks outside the US are looking
extraordinarily inexpensive. In Japan, over two-thirds of the smaller companies
trading on the over-the-counter market are selling below book value. In the UK,
company managements are actively using their own money to buy shares in their
companies. We are taking advantage of these low valuations by buying world-class
small companies at bargain basement prices for you.
[PHOTO OF MARCEL P. HOUTZAGER APPEARS HERE]
Marcel P. Houtzager
Lead Portfolio Manager
Wanger International
Small Cap
6
<PAGE>
Wanger Advisors Trust 1997 Annual Report
- --------------------------------------------------------------------------------
Wanger International Small Cap Results to December 31, 1997
- --------------------------------------------------------------------------------
The Value of a $10,000 Investment in Total Return for Each Period
Wanger International Small Cap May 3, 1995 through December 31, 1997
[GRAPH CHART APPEARS HERE]
<TABLE>
<CAPTION>
Wanger Int'l Small Cap EAFE % on graph axis
---------------------- ---- ---------------
<S> <C> <C> <C>
5/3/95 $10,000 $10,000
6/30/95 $10,970 $ 9,825 +9.7%
9/30/95 $12,910 $10,234 +17.7%
12/31/95 $13,450 $10,649 +4.2%
3/31/96 $15,499 $10,956 +15.2%
6/30/96 $17,183 $11,130 +10.9%
9/30/96 $17,023 $11,116 -0.9%
12/31/96 $17,755 $11,293 +4.3%
3/31/97 $18,357 $11,112 +3.4%
6/30/97 $19,568 $12,558 +6.6%
9/30/97 $19,363 $12,470 -1.1%
12/31/97 $17,496 $11,493 -9.6%
</TABLE>
- --------------------------------------------------------------------------------
This graph compares the results of $10,000 invested in Wanger International
Small Cap on May 3, 1995 (the date the Fund began operations) through December
31, 1997, with Morgan Stanley's Europe, Australasia Far East Index (EAFE), with
dividends reinvested. The beginning date of EAFE is as of May 31, 1995. The
performance data quoted is past performance and does not guarantee future
results. The investment return and principal value of an investment will
fluctuate so that investors' shares, when redeemed, may be worth more or less
than their original cost.
Average Annual Total Return
1 year: -1.5% Life: 23.3%
7
<PAGE>
Wanger Advisors Trust 1997 Annual Report
- --------------------------------------------------------------------------------
Wanger U.S. Small Cap Statement of Investments December 31, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Number of Value
Shares
<S> <C> <C>
Common Stocks--92.1%
Information--27.1%
- --------------------------------------------------------------------------------
Broadcasting--2.7%
250,600 Data Transmission Network (b) $7,016,800
Data Services for Farmers
4,800 Young Broadcasting (b) 186,000
Television Stations
- --------------------------------------------------------------------------------
7,202,800
- --------------------------------------------------------------------------------
Cable Television--2.9%
61,000 Cablevision Systems (b) 5,840,750
Cable TV
86,000 Cable Michigan (b) 1,967,250
Cable TV
- --------------------------------------------------------------------------------
7,808,000
- --------------------------------------------------------------------------------
Television Programming--4.5%
239,100 United Video Satellite (b) 6,874,125
Cable TV & Satellite Dish Programming
148,000 Liberty Media Group,
Tele-Communications (b) 5,365,000
Cable Programming
- --------------------------------------------------------------------------------
12,239,125
- --------------------------------------------------------------------------------
Telephone Services--4.5%
239,200 RCN Corporation (b) 8,192,600
Metro Market--Voice, Video & Data Services
159,000 Commonwealth Telephone (b) 4,114,125
Rural Market--Local, Long Distance &
Internet Access
- --------------------------------------------------------------------------------
12,306,725
- --------------------------------------------------------------------------------
Mobile Communications--3.9%
262,000 Centennial Cellular (b) 5,371,000
Cellular Franchises
234,500 COMARCO (b) 5,159,000
Wireless Network Testing
- --------------------------------------------------------------------------------
10,530,000
- --------------------------------------------------------------------------------
Telecommunications Equipment--1.0%
124,000 Aspect Telecommunications (b) 2,588,500
Call Center Equipment
- --------------------------------------------------------------------------------
Business Software--2.1%
393,400 Wonderware (b) 5,556,775
Industrial Control Software
- --------------------------------------------------------------------------------
Business Information--1.5%
100,000 World Color Press (b) 2,656,250
Consolidating Commercial Printing Industry
14,000 Harte Hanks Communications 519,750
Direct Marketing Services
49,000 American Business Information, Cl. A (b) 514,500
49,000 American Business Information, Cl. B (b) 502,250
Small Business Data
- --------------------------------------------------------------------------------
4,192,750
- --------------------------------------------------------------------------------
Transaction Processors--0.9%
66,000 National Data 2,384,250
Credit Card & Medical Claims Processor
- --------------------------------------------------------------------------------
Computer Hardware &
Related Equipment--3.1%
276,000 Kronos (b) 8,504,250
Time Accounting Software & Clocks
- --------------------------------------------------------------------------------
Information--Total 73,313,175
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
Wanger Advisors Trust 1997 Annual Report
- --------------------------------------------------------------------------------
Wanger U.S. Small Cap Statement of Investments December 31, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Number of Value
Shares
<S> <C> <C>
Health Care--11.0%
- --------------------------------------------------------------------------------
Medical Equipment--2.0%
210,000 Respironics (b) $ 4,698,750
Sleep Apnea Products
106,900 Cardiac Pathways (b) 748,300
Heart Surgery Devices
- --------------------------------------------------------------------------------
5,447,050
- --------------------------------------------------------------------------------
Biotechnology/Drug Delivery--0.5%
117,000 Synaptic Pharmaceuticals (b) 1,272,375
Receptor Targeted Drug Design
- --------------------------------------------------------------------------------
Services--8.5%
247,000 Lincare Holdings (b) 14,079,000
Home Health Care Services
177,000 First Health Group (b) 9,049,125
(formerly known as HealthCare Compare)
PPO Network
- --------------------------------------------------------------------------------
23,128,125
- --------------------------------------------------------------------------------
Health Care--Total 29,847,550
Consumer Goods/Services--6.5%
- --------------------------------------------------------------------------------
Retail--3.9%
583,600 Host Marriott Services (b) 8,681,050
Fast Food Kiosks in Airports
60,000 Borders Group (b) 1,878,750
Bookstores
- --------------------------------------------------------------------------------
10,559,800
- --------------------------------------------------------------------------------
Cruise Lines--1.9%
95,000 Royal Caribbean Cruises 5,064,687
Cruises to Caribbean & Alaska
- --------------------------------------------------------------------------------
Casinos--0.5%
42,000 Rio Hotel & Casino (b) 882,000
Casino & Hotel
115,200 Monarch Casino & Resort (b) 633,600
Casino & Hotel
- --------------------------------------------------------------------------------
1,515,600
- --------------------------------------------------------------------------------
Other Consumer Goods--0.2%
19,000 Oshkosh B'Gosh 627,000
Childrens Clothing
- --------------------------------------------------------------------------------
Consumer Goods/Services--Total 17,767,087
Finance--14.4%
- --------------------------------------------------------------------------------
Banks/Savings & Loans--6.7%
160,000 Coast Savings (b) 10,970,000
California Savings & Loan
90,000 Texas Regional Bancshares 2,745,000
TexMex Bank
67,500 Peoples Bank Bridgeport 2,565,000
Consumer Finance
106,000 Imperial Thrift & Loan (b) 2,040,500
California Thrift
- --------------------------------------------------------------------------------
18,320,500
- --------------------------------------------------------------------------------
Insurance--5.7%
293,700 Acceptance Insurance (b) 7,103,873
Crop Insurance
100,000 Penn Treaty American (b) 3,175,000
Nursing Home Insurance
86,100 AmerUs Life Holdings 3,174,937
Annuities/Life Insurance
56,000 Leucadia National 1,932,000
Insurance Holding Company
- --------------------------------------------------------------------------------
15,385,810
- --------------------------------------------------------------------------------
Money Management--2.0%
66,000 SEI Investments 2,772,000
Mutual Fund Administration
140,000 Baker Fentress 2,555,000
Closed-End Investment Company
- --------------------------------------------------------------------------------
5,327,000
- --------------------------------------------------------------------------------
Finance--Total 39,033,310
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
Wanger Advisors Trust 1997 Annual Report
- --------------------------------------------------------------------------------
Wanger U.S. Small Cap Statement of Investments December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Number of Value
Shares
<C> <S> <C>
Industrial Goods/Services--11.6%
- ----------------------------------------------------------
Machinery--2.7%
137,000 Applied Industrial Technologies $3,664,750
Industrial Components Distribution
180,500 Farr (b) 2,707,500
Filters
49,000 Vallen 1,016,750
Safety Products Distribution
- ----------------------------------------------------------
7,389,000
- ----------------------------------------------------------
Steel--3.6%
133,000 Schnitzer Steel 3,732,312
Scrap Steel Processor
181,000 Atchison Casting (b) 2,941,250
Consolidating Foundry Industry
79,900 Gibraltar Steel (b) 1,578,025
Steel Processing
94,000 Worthington Industries 1,551,000
Steel Processing
- ----------------------------------------------------------
9,802,587
- ----------------------------------------------------------
Specialty Chemicals--1.3%
165,800 Lilly Industries, Cl.A 3,419,625
Industrial Coatings
- ----------------------------------------------------------
Other Industrial Services--4.0%
367,400 Wackenhut, Cl.B 7,761,325
Prison Management
257,400 Insurance Auto Auctions (b) 2,960,100
Auto Salvage Services
- ----------------------------------------------------------
10,721,425
- ----------------------------------------------------------
Industrial Goods/Services--Total 31,332,637
Energy/Minerals--18.3%
- ----------------------------------------------------------
Independent Power--4.3%
343,000 CalEnergy (b) 9,861,250
Power Plants
38,000 AES Corporation (b) 1,771,750
Power Plants
- ----------------------------------------------------------
11,633,000
- ----------------------------------------------------------
Oil/Gas Producers--4.8%
539,300 Tesoro Petroleum (b) 8,359,150
Oil Refinery/Gas Reserves
149,900 Seagull Energy (b) 3,091,687
Oil & Gas Producer
67,000 PetSec Energy ADR (b) 921,250
Oil & Gas Producer
139,000 Tipperary (b) 564,687
Oil & Gas Producer
- ----------------------------------------------------------
12,936,774
- ----------------------------------------------------------
Distribution/Marketing/Refining--5.9%
219,000 Atmos Energy 6,624,750
Natural Gas Distributor
331,600 NGC 5,803,000
Natural Gas Processing/Marketing
103,000 Equitable Resources 3,643,625
Natural Gas Production/Distributor
- ----------------------------------------------------------
16,071,375
- ----------------------------------------------------------
Oil Services--3.3%
123,300 J Ray McDermott (b) 5,301,900
Offshore Construction
221,000 GeoScience (b) 2,596,750
Offshore Seismic Equipment
20,000 Atwood Oceanics (b) 947,500
Offshore Drilling
- ----------------------------------------------------------
8,846,150
- ----------------------------------------------------------
Energy/Minerals--Total 49,487,299
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
Wanger Advisors Trust 1997 Annual Report
- --------------------------------------------------------------------------------
Wanger U.S. Small Cap Statement of Investments December 31, 1997
<TABLE>
<CAPTION>
- -------------------------------------------------------------
Number of Value
Shares
<C> <S> <C>
Other Industries-3.2%
- -------------------------------------------------------------
Real Estate-2.4%
62,500 Forest City Enterprises, Cl. A $3,632,812
Shopping Centers
65,000 Gaylord Entertainment 2,075,937
Opryland Hotel & Other Assets
45,000 Cornerstone Properties 863,437
Downtown Office Buildings
- -------------------------------------------------------------
6,572,186
- -------------------------------------------------------------
Transportation-0.8%
50,000 Hub Group (b) 1,487,500
Freight Forwarder
66,000 Trailer Bridge (b) 585,750
Tug & Barge Transportation
- -------------------------------------------------------------
2,073,250
- -------------------------------------------------------------
Other Industries-Total 8,645,436
- -------------------------------------------------------------
Total Common Stocks-92.1% $249,426,494
- -------------------------------------------------------------
(Cost: $192,907,268)
Short-Term Obligation-9.0% 24,377,000
$24,377,000 State Street Bank Repurchase
Agreement 5.00% 1/2/98;
12/31/97 Agreement Collateralized by
U.S. Treasury Notes
- -------------------------------------------------------------
(Cost: $24,377,000)
Total Investments-101.1% 273,803,494
- -------------------------------------------------------------
(Cost: $217,284,268)
Cash and Other Assets Less Liabilities-(1.1%) (2,937,667)
- -------------------------------------------------------------
Total Net Assets-100% $270,865,827
- -------------------------------------------------------------
</TABLE>
Notes to Statement of Investments:
(a) At December 31, 1997 for federal income tax purposes cost of investments
was $217,297,344 and net unrealized appreciation was $56,506,150 consisting
of gross unrealized appreciation of $61,123,418 and gross unrealized
depreciation of $4,617,268.
(b) Non-income producing security.
See accompanying notes to financial statements.
11
<PAGE>
Wanger Advisors Trust 1997 Annual Report
- --------------------------------------------------------------------------------
Wanger International Small Cap Statement of Investments December 31, 1997
<TABLE>
<CAPTION>
- -------------------------------------------------------------
Number of Value
Shares
<S> <C> <C>
Common Stocks and Other Equity-Like
Securities-90.6%
Europe-57.8%
- -------------------------------------------------------------
Germany/Austria-3.9%
21,000 Rhoen Klinikum $2,055,503
Hospital Management
25,000 KTM Motorradholding (b) 1,260,749
Off-Road Motorcycles (Austria)
7,715 Schaltbau 828,093
Railcar Components
2,780 Cewe Color Holdings 584,416
Photographic Developing/Printing
- -------------------------------------------------------------
4,728,761
- -------------------------------------------------------------
Denmark-0.8%
10,000 Kompan International 927,359
Playground Equipment
- -------------------------------------------------------------
Netherlands-3.9%
85,000 Kempen 3,270,359
Stock Brokerage/Investment Management
47,400 Fugro NV 1,444,937
Consulting & Surveying
- -------------------------------------------------------------
4,715,296
- -------------------------------------------------------------
Finland-3.9%
25,000 TT Tieto, Cl. B 2,814,146
Computer Services/Consulting
99,200 Talentum 1,229,596
Trade Journals
6,500 Sentra 477,440
Grocery Wholesaling & Retailing
13,800 Elcoteq Network (b) 173,586
Electrical Components
- -------------------------------------------------------------
4,694,768
- -------------------------------------------------------------
Norway-0.5%
62,500 P4 Radio Helo Norge (b) 551,041
Commercial Radio Station
- -------------------------------------------------------------
Sweden-6.6%
106,000 Getinge Industrier 1,683,262
Sterilization & Disinfection Equipment
300,000 Micronic Laser Systems (b) 1,436,745
Electronics Production Equipment
82,500 Elanders (b) 1,133,327
Printer
50,000 Esselte, Series A 945,227
Office Supplies & Related Equipment
125,000 Caran 811,320
Engineering Consulting
225,000 Gylling Optima (b) 757,127
Nondurable Goods
30,200 Mandator (b) 688,906
Computer Services/Consulting
20,000 Tryckindustri (b) 567,136
Printer
- -------------------------------------------------------------
8,023,050
- -------------------------------------------------------------
France-1.0%
10,000 Fininfo 1,188,497
Financial Data Feeds
- -------------------------------------------------------------
United Kingdom/Ireland-18.7%
568,000 Oriflame International 4,158,917
Natural Cosmetics Sold Door-to-Door
1,100,000 St. James Place 3,058,798
Life Insurance
323,500 Seton Healthcare Group 2,781,198
Pharmaceuticals
100,000 Euro Money Publications 2,603,845
Financial Publications
120,000 Vosper Thornycroft 1,589,456
Naval Shipbuilding
2,000,000 Electronics Boutique (b) 1,563,129
Videogame/Computer Software Stores
</TABLE>
See accompanying notes to financial statements.
12
<PAGE>
Wanger Advisors Trust 1997 Annual Report
- --------------------------------------------------------------------------------
Wanger International Small Cap Statement of Investments December 31, 1997
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
Number of Value
Shares
<C> <S> <C>
United Kingdom/Ireland-18.7% (cont.)
540,000 Medeva $ 1,434,953
Drugs for Hyperactive Children
310,000 Hogg Robinson 1,303,238
Corporate Travel Management
160,000 Edinburgh Fund Managers 1,201,800
Investment Management
40,000 NTL (b) 1,115,000
Cable TV & Telephone System
620,000 Aberdeen Trust 897,730
Money Management
240,000 Dorling Kindersley 858,898
Reference Books & CD-ROMs
- -------------------------------------------------------------------
22,566,962
- -------------------------------------------------------------------
Spain/Portugal-7.3%
200,000 Mapfre Vida 7,033,197
Life Insurance/Mutual Funds
60,000 Investec (b) 1,778,623
Sports Newspaper (Portugal)
- -------------------------------------------------------------------
8,811,820
- -------------------------------------------------------------------
Switzerland-1.8%
3,000 Societe Generale d'Affichage 1,172,357
Billboard Advertising
1,400 Phoenix Mecano 715,069
Electrical Components
895 Hiestand (b) 316,005
Bakery
- -------------------------------------------------------------------
2,203,431
- -------------------------------------------------------------------
Italy/Greece-9.4%
800,000 Autogrill Finanziari (b) 4,280,423
Tollway Restaurants
232,500 Athens Medical Center (b) 2,749,418
Hospitals (Greece)
40,000 Cellular Communications International (b) 1,870,000
Mobile Communications
100,000 Banca Pop Commercia e Industria 1,668,504
Regional Bank
150,000 Saipem SPA 789,004
Pipeline Construction & Drilling Contractor
- -------------------------------------------------------------------
11,357,349
- -------------------------------------------------------------------
Europe-Total 69,768,334
Asia-20.1%
- -------------------------------------------------------------------
Hong Kong-4.0%
2,740,000 Li and Fung 3,836,742
Sourcing of Consumer Goods
4,484,000 Vanda Systems (b) 925,908
Systems Integrator
2,665,000 Golden Harvest Entertainment (b) 120,378
Movie Distribution & Exhibition
- -------------------------------------------------------------------
4,883,028
- -------------------------------------------------------------------
Japan-9.0%
140,040 Shinki 2,046,349
Corporate & Consumer Lending
370,000 Belluna 1,789,886
Catalog Sales
130,000 Kawasumi Labs 1,589,694
Laboratory Supplies
15,300 Ryohin Keikaku 1,011,959
Specialty Consumer Goods Retailer
3,200 Shohkoh Fund 979,503
Short-Term Loans for Small Businesses
</TABLE>
See accompanying notes to financial statements.
13
<PAGE>
Wanger Advisors Trust 1997 Annual Report
- --------------------------------------------------------------------------------
Wanger International Small Cap Statement of Investments December 31, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Number of Value
Shares
<C> <S> <C>
- --------------------------------------------------------------------------------
Japan--9.0% (cont.)
39,000 Hokuto $ 869,832
Mushroom Grower
85,000 Tecmo 647,183
Commercial Video Games
35,000 NuSkin Asia Pacific (b) 638,750
Personal Care Products
23,600 Konami 582,626
Entertainment Software/Hardware
12,600 Noritsu Koki 312,032
Photo Processing Lab Manufacturer
21,600 Tiemco 219,280
Fishing Equipment
43,920 Central Uni 192,535
Health Care/Medical Equipment
- --------------------------------------------------------------------------------
10,879,629
Philippines--0.3%
17,267,520 Mondragon International (b) 307,266
Casinos/Resorts
- --------------------------------------------------------------------------------
Singapore--6.8%
1,300,400 Star Cruises (b) 2,717,838
Cruise Line
912,000 Venture Manufacturing 2,543,857
Contract Electronics Manufacturer
5,571,000 Omni Industries (b) 1,355,554
Contract Electronics Manufacturer
1,111,000 Electronic Resources 1,127,483
474,000 Electronic Resources Wts. 7/17/01 (b) 281,305
Distribution of Electronic Components
1,300,400 Genting International 149,546
Cruise Line
- --------------------------------------------------------------------------------
8,175,583
- --------------------------------------------------------------------------------
Asia-Total 24,245,506
Latin America--4.4%
- --------------------------------------------------------------------------------
Mexico--1.6%
1,251,000 Nadro, Series L $1,083,104
Pharmaceutical Distribution
227,500 Grupo Continental (b) 809,879
Coca-Cola Bottler
- --------------------------------------------------------------------------------
1,892,983
- --------------------------------------------------------------------------------
Brazil--1.8%
111,000 Elevadores Atlas 1,342,621
Elevator Services
45,000 Bompreco GDS (b) 830,250
Supermarket Chain
- --------------------------------------------------------------------------------
2,172,871
- --------------------------------------------------------------------------------
Argentina--1.0%
70,000 Patagonia 1,260,266
Supermarkets
- --------------------------------------------------------------------------------
Latin America--Total 5,326,120
Other Countries--8.3%
- --------------------------------------------------------------------------------
Australia--3.8%
2,050,000 Tyndall 3,205,873
Money Management & Insurance
550,000 Anaconda Nickel (b) 824,273
Nickel Mining
438,200 Australian Hospital Care 585,338
Hospital Management
- --------------------------------------------------------------------------------
4,615,484
</TABLE>
See accompanying notes to financial statements.
14
<PAGE>
Wanger Advisors Trust 1997 Annual Report
- --------------------------------------------------------------------------------
Wanger International Small Cap Statement of Investments December 31, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal Amount or Value
Number
of Shares
<S> <C> <C>
Other Countries--8.3% (cont.)
- --------------------------------------------------------------------------------
Canada--4.5%
60,000 Shaw Industries $ 2,037,594
Oil Field Services
200,000 Ranger Oil 1,375,000
Oil & Gas Producer
93,100 Milltronics (b) 1,131,954
Industrial Measurement Instruments
85,000 Club Monaco (b) 861,225
Specialty Apparel & Accessories
- --------------------------------------------------------------------------------
5,405,773
- --------------------------------------------------------------------------------
Other--Total 10,021,257
Total Common Stocks and Other
Equity-Like Securities--90.6% 109,361,217
- --------------------------------------------------------------------------------
(Cost: $104,352,096)
Short-Term Obligation--9.2% 11,094,000
$11,094,000 State Street Bank Repurchase
Agreement 5.00% 1/2/98;
12/31/97 Agreement Collateralized by U.S. Treasury Notes
- --------------------------------------------------------------------------------
(Cost: $ 11,094,000)
Total Investments--99.8% 120,455,217
- --------------------------------------------------------------------------------
(Cost: $115,446,096)
Cash and Other Assets Less Liabilities--0.2% 204,941
- --------------------------------------------------------------------------------
Total Net Assets--100% $120,660,158
================================================================================
</TABLE>
Notes to Statement of Investments:
(a) At December 31, 1997 for federal income tax purposes cost of investments
was $117,252,875 and net unrealized appreciation was $3,202,342 consisting
of gross unrealized appreciation of $20,278,652 and gross unrealized
depreciation of $17,076,310.
(b) Non-income producing security.
See accompanying notes to financial statements.
15
<PAGE>
Wanger Advisors Trust 1997 Annual Report
- --------------------------------------------------------------------------------
Wanger International Small Cap Portfolio Diversification December 31, 1997
At December 31, 1997 the Fund's portfolio of investments as a
percentage of net assets was diversified as follows:
<TABLE>
<CAPTION>
Value Percent
================================================================================
<S> <C> <C>
Information
Publishing $ 8,171,422 6.8%
Computer Services 4,428,960 3.7
Contract Manufacturing 3,899,411 3.2
Mobile Communications 1,870,000 1.5
Semiconductors & Related Equipment 1,436,745 1.2
Electronics Distribution 1,408,788 1.2
Business Information 1,188,497 1.0
Advertising 1,172,357 1.0
CATV 1,115,000 0.9
Radio 551,041 0.4
- --------------------------------------------------------------------------------
25,242,221 20.9
================================================================================
Health Care
Hospital Management 5,390,259 4.5
Pharmaceuticals 4,216,151 3.5
Hospital/Laboratory Supplies 3,272,954 2.7
Equipment 192,535 0.1
- --------------------------------------------------------------------------------
13,071,899 10.8
================================================================================
Consumer Goods/Services
Retail 11,597,122 9.6
Nondurable Goods 6,080,546 5.0
Travel 4,170,620 3.4
Consumer Goods Distribution 2,199,293 1.8
Durable Goods 1,260,749 1.0
Consumer Software 1,229,809 1.0
Food 1,185,837 1.0
Leisure Products 927,359 0.8
Beverages 809,879 0.7
Consumer Services 584,416 0.5
Gaming 307,266 0.3
Entertainment 120,378 0.1
- --------------------------------------------------------------------------------
30,473,274 25.2
================================================================================
Finance
Insurance $10,092,033 8.4
Money Management 5,305,401 4.4
Brokerage 3,270,359 2.7
Finance Companies 3,025,847 2.5
Banks 1,668,504 1.4
- --------------------------------------------------------------------------------
23,362,144 19.4
================================================================================
Industrial Goods/Services
Outsourcing Services 4,648,062 3.9
Electrical Components 2,020,609 1.7
Machinery 1,901,488 1.5
Services 1,342,621 1.1
- --------------------------------------------------------------------------------
9,912,780 8.2
================================================================================
Energy/Minerals
Oil Services 4,271,533 3.5
Oil/Gas Producers 1,375,000 1.2
Non Ferrous Metals 824,273 0.7
- --------------------------------------------------------------------------------
6,470,806 5.4
================================================================================
Other Industries
Transportation 828,093 0.7
================================================================================
Total Common Stocks and 109,361,217 90.6
Other Equity-Like Securities
================================================================================
Short-Term Obligation 11,094,000 9.2
================================================================================
Cash and Other Assets less 204,941 0.2
Liabilities
================================================================================
Net Assets $120,660,158 100.0
</TABLE>
See accompanying notes to financial statements.
16
<PAGE>
<TABLE>
<CAPTION>
Wanger Advisors Trust 1997 Annual Report
- -------------------------------------------------------------------------------------------------------------------------
Statements of Assets and Liabilities December 31, 1997
Wanger U.S. Wanger International
Small Cap Small Cap
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments, at value (cost: Wanger U.S. Small Cap $217,284,268; $273,803,494 $120,455,217
Wanger International Small Cap $115,446,096)
Cash 5,525 38,675
Organization costs 46,664 46,664
Receivable for:
Securities sold 122,569 213,589
Fund shares sold 430,907 32,618
Dividends and interest 42,315 235,476
Other assets 1,932 1,932
- -------------------------------------------------------------------------------------------------------------------------
Total assets 274,453,406 121,024,171
Liabilities and Net Assets
Payable for:
Securities purchased 3,499,610 252,791
Fund shares redeemed 4,595 5,303
Amount owed to advisor 47,006 46,796
Other 36,368 59,123
- -------------------------------------------------------------------------------------------------------------------------
Total liabilities 3,587,579 364,013
- -------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Fund shares outstanding $270,865,827 $120,660,158
=========================================================================================================================
Fund shares outstanding 12,623,845 7,078,763
=========================================================================================================================
Pricing of Shares
Net asset value, offering price and redemption price per share $21.46 $17.05
=========================================================================================================================
Analysis of Net Assets
Paid-in capital $198,937,086 $116,311,524
Accumulated net realized gain (loss) on sales of investments and
foreign currency transactions 15,409,515 (797,955)
Net unrealized appreciation of investments and foreign currency transactions
(net of unrealized PFIC gains of $1,391,583 for Wanger International Small Cap) 56,519,226 3,613,734
Undistributed net investment income -- 1,532,855
- -------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Fund shares outstanding $270,865,827 $120,660,158
=========================================================================================================================
</TABLE>
See accompanying notes to financial statements.
17
<PAGE>
Wanger Advisors Trust 1997 Annual Report
- --------------------------------------------------------------------------------
Statements of Operations For the Year ended December 31, 1997
<TABLE>
<CAPTION>
Wanger U.S. Wanger International
Small Cap Small Cap
=======================================================================================================
<S> <C> <C>
Investment Income:
Dividends (net of foreign taxes of $168,334
for Wanger International Small Cap) $ 1,169,391 $ 1,720,326
Interest 724,088 328,594
- -------------------------------------------------------------------------------------------------------
Total investment income 1,893,479 2,048,920
=======================================================================================================
Expenses:
Investment advisory 1,960,795 1,528,703
Custodian 34,787 233,560
Legal and audit 51,124 49,714
Reports to shareholders 19,094 20,294
Amortization of organization costs 19,976 19,976
Transfer agent 19,345 21,345
Trustees' 18,214 18,237
Insurance 5,794 5,785
Other 5,860 5,794
- -------------------------------------------------------------------------------------------------------
Total expenses 2,134,989 1,903,408
Less custodian fees paid indirectly (34,541) (2,759)
- -------------------------------------------------------------------------------------------------------
Net expenses 2,100,448 1,900,649
- -------------------------------------------------------------------------------------------------------
Net investment income (loss) (206,969) 148,271
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) on sales of investments 15,616,554 (616,933)
Net change in unrealized appreciation 37,057,494 (2,999,052)
- -------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 52,674,048 (3,615,985)
- -------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $52,467,079 $(3,467,714)
=======================================================================================================
</TABLE>
See accompanying notes to financial statements.
18
<PAGE>
Wanger Advisors Trust 1997 Annual Report
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
--------------------------------------- ---------------------------------------
Wanger U.S. Small Cap Wanger International Small Cap
Year ended Year ended Year ended Year ended
December 31, 1997 December 31, 1996 December 31, 1997 December 31, 1996
=================================================================================================================================
<S> <C> <C> <C> <C>
From operations:
Net investment income (loss) $ (206,969) $ (286,925) $ 148,271 $ (272,469)
Net realized gain (loss) on sales of investments 15,616,554 3,926,442 (616,933) 2,570,609
Net change in unrealized appreciation 37,057,494 19,022,289 (2,999,052) 6,894,415
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets 52,467,079 22,661,806 (3,467,714) 9,192,555
resulting from operations
Distributions to shareholders from:
Net investment income - - - (6,530)
Net realized gain (3,530,225) (66,519) (2,453,253) (52,334)
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders (3,530,225) (66,519) (2,453,253) (58,864)
From Fund share transactions:
Reinvestment of dividends and capital
gain distributions 3,530,225 66,519 2,453,253 58,864
Proceeds from other shares sold 109,491,784 91,019,446 54,111,870 67,872,674
- ---------------------------------------------------------------------------------------------------------------------------------
113,022,009 91,085,965 56,565,123 67,931,538
Payments for shares redeemed (20,050,947) (6,626,877) (14,839,080) (3,579,071)
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from
Fund share transactions 92,971,062 84,459,088 41,726,043 64,352,467
- ---------------------------------------------------------------------------------------------------------------------------------
Total increase in net assets 141,907,916 107,054,375 35,805,076 73,486,158
=================================================================================================================================
Net assets:
Beginning of period 128,957,911 21,903,536 84,855,082 11,368,924
- ---------------------------------------------------------------------------------------------------------------------------------
End of period (a) $270,865,827 $128,957,911 $120,660,158 $84,855,082
=================================================================================================================================
</TABLE>
(a) Includes undistributed net investment income of $1,532,855 for Wanger
International Small Cap at December 31, 1997.
See accompanying notes to financial statements.
19
<PAGE>
Wanger Advisors Trust 1997 Annual Report
- --------------------------------------------------------------------------------
Wanger U.S. Small Cap Financial Highlights
<TABLE>
<CAPTION>
Year ended Year ended May 3, 1995 through
December 31, 1997 December 31, 1996 December 31, 1995
==============================================================================================================
<S> <C> <C> <C>
Net Asset Value, beginning of period $16.97 $11.60 $10.00
Income From Investment Operations
Net investment loss (c) (.02) (.06) (.05)
Net realized and unrealized gain on investments 4.90 5.46 1.65
- --------------------------------------------------------------------------------------------------------------
Total from investment operations 4.88 5.40 1.60
Less Distributions
Dividends from net investment income -- -- --
Distributions from net realized gain (.39) (.03) --
- --------------------------------------------------------------------------------------------------------------
Total distributions (.39) (.03) --
Net Asset Value, end of period $21.46 $16.97 $11.60%
==============================================================================================================
Total Return 29.41% 46.59% 16.00%
Ratios/Supplemental Data
Ratio of expenses to average net assets (a) (b) 1.06% 1.21% 2.08%*
Ratio of net investment loss to average
net assets (b) (.10%) (.41%) (1.44)%*
Portfolio turnover rate 34% 46% 59%*
Net assets at end of period $270,865,827 $128,957,911 $21,903,536
</TABLE>
The average commission rates paid per share on stock transactions for the years
ended December 31, 1997 and December 31, 1996 were $.0578 and $.0581,
respectively.
- --------------------------------------------------------------------------------
*Annualized
(a) In accordance with a requirement of the Securities and Exchange Commission,
this ratio reflects gross custodian fees. This ratio net of custodian fees
paid indirectly would have been 1.04% for the year ended December 31, 1997,
1.19% for the year ended December 31, 1996 and 2.00% for the period ended
December 31, 1995.
(b) The Fund was reimbursed by the Advisor for certain expenses from May 3,
1995 through December 31, 1995. Without the reimbursement, the ratio of
expenses to average net assets and the ratio of net investment income to
average net assets for the period ended December 31, 1995 would have been
2.35% and (1.71%), respectively.
(c) Net investment loss per share for the years ended December 31,1997 and
December 31, 1996 was based upon the average shares outstanding during the
period.
See accompanying notes to financial statements.
20
<PAGE>
<TABLE>
<CAPTION>
Wanger Advisors Trust 1997 Annual Report
- ----------------------------------------------------------------------------------------------------------------------------------
Wanger International Small Cap Financial Highlights
<S> <C> <C> <C>
Year ended Year ended May 3, 1995 through
December 31, 1997 December 31, 1996 December 31, 1995
- ----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, beginning of period $17.71 $13.45 $10.00
Income From Investment Operations
Net investment income (loss) (c) .02 (.09) (.03)
Net realized and unrealized gain on investments (.26) 4.38 3.48
- ----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (.24) 4.29 3.45
Less Distributions
Dividends from net investment income -- -- --
Distributions from net realized and unrealized gain
reportable for federal income taxes (.42) (.03) --
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions (.42) (.03) --
Net Asset Value, end of period $17.05 $17.71 $13.45
==================================================================================================================================
Total Return (1.46%) 32.01 34.50%
Ratios/Supplemental Data
Ratio of expenses to average net assets (a) (b) 1.60% 1.79% 2.32%*
Ratio of net investment income (loss) to average net assets (b) .12% (.56%) (.81%)*
Portfolio turnover rate 60% 50% 14%*
Net assets at end of period $ 120,660,158 $84,855,082 $11,368,924
</TABLE>
The average commission rates paid per share on stock transactions
for the years ended December 31, 1997 and December 31, 1996 were
$.0078 and $.0130, respectively.
- -------------------------------------------------------------------------------
*Annualized
(a) In accordance with a requirement of the Securities and Exchange Commission,
this ratio reflects gross custodian fees. This ratio net of custodian fees
paid indirectly would have been 1.59% for the year ended December 31, 1997,
1.75% for the year ended December 31, 1996 and 2.00% for the period ended
December 31, 1995.
(b) The fund was reimbursed by the Advisor for certain expenses from May 3,
1995 through December 31, 1995. Without the reimbursement, the ratio of
expenses to average net assets and the ratio of net investment income to
average net assets for the period ended December 31, 1995 would have been
4.20% and (2.69%), respectively.
(c) Net investment income (loss) per share for the years ended December 31, 1997
and December 31, 1996 was based upon the average shares outstanding during
the period.
See accompanying notes to financial statements.
21
<PAGE>
Wanger Advisors Trust 1997 Annual Report
- --------------------------------------------------------------------------------
Notes to Financial Statements
1. Nature of Operations
Wanger U.S. Small Cap and Wanger International Small Cap ("the Funds") are
series of Wanger Advisors Trust ("the Trust"), an open-end management investment
company organized as a Massachusetts business trust. The investment objective of
each Fund is to seek long-term growth of capital. The Funds are available only
for allocation to certain life insurance company separate accounts established
for the purpose of funding variable insurance contracts, and may also be offered
directly to certain types of pension plans and retirement arrangements.
2. Significant Accounting Policies
Security valuation
Investments are stated at current value. Securities traded on securities
exchanges or in over-the-counter markets in which transaction prices are
reported are valued at the last sales price at the time of valuation. Securities
for which there are no reported sales on the valuation date are valued at the
mean of the latest bid and ask quotation or, if there is no ask quotation, at
the most recent bid quotation. Money market instruments having a maturity of 60
days or less from the valuation date are valued on an amortized cost basis.
Securities for which quotations are not readily available and any other assets
are valued as determined in good faith by the Board of Trustees.
Foreign currency translations
Values of investments denominated in foreign currencies are converted into U.S.
dollars using the spot market rate of exchange at the time of valuation.
Purchases and sales of investments and dividend and interest income are
translated into U.S. dollars using the spot market rate of exchange prevailing
on the respective dates of such transactions. The gain or loss resulting from
changes in foreign exchange rates is included with net realized and unrealized
gain or loss from investments, as appropriate.
Security transactions and investment income
Security transactions are accounted for on the trade date (date the order to buy
or sell is executed) and dividend income is recorded on the ex-dividend date,
except that certain dividends from foreign securities are recorded as soon as
the information is available to the Fund. Interest income is recorded on the
accrual basis and includes amortization of discounts on money market instruments
and on long-term debt instruments when required for federal income tax purposes.
Realized gains and losses from security transactions are reported on an
identified cost basis.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results may differ from those estimated.
Fund share valuation
Fund shares are sold and redeemed on a continuing basis at net asset value. Net
asset value per share is determined daily as of the close of trading on the New
York Stock Exchange on each day the Exchange is open for trading by dividing the
total value of the Fund's investments and other assets, less liabilities, by the
number of Fund shares outstanding.
Custodian fees
Custodian fees are reduced based on each Fund's cash balances maintained with
the custodian. This presentation does not affect the determination of net
investment income.
Federal income taxes, dividends and distributions to shareholders
The Funds have complied with the special provisions of the Internal Revenue Code
available to regulated investment companies and, in the manner provided therein,
distribute all of their taxable income, as well as any net realized gain on
sales of investments and foreign currency transactions reportable for federal
income tax purposes.
Wanger International Small Cap has elected to mark-to-market its
investments in Passive Foreign Investment Companies ("PFICs") for income tax
purposes. In accordance with this election, the Fund recognized unrealized
appreciation on PFICs of $1,226,459 for the year ended December 31, 1997.
Cumulative net unrealized appreciation recognized in prior years on PFICs sold
in 1997 amounted to $22,832.
Wanger International Small Cap intends to utilize provisions of the federal
income tax law that allows it to carry a realized capital loss forward for eight
years following the year of the loss and offset such losses against future
realized gains. At December 31, 1997, the Fund had a capital loss carryforward
of $382,694 which will expire December 31, 2005.
Dividends and distributions payable to each Fund's shareholders are
recorded by the Fund on the ex-dividend date.
Reclassifications have been made between undistributed net investment
income and accumulated net realized gain (loss) on sales of investments and
foreign currency transactions to reflect differences between financial reporting
and income tax bases. Undistributed net investment income has been increased as
follows: Wanger U.S. Small Cap $206,969 and Wanger International Small Cap
$158,125.
22
<PAGE>
Wanger Advisors Trust 1997 Annual Report
- --------------------------------------------------------------------------------
Notes to Financial Statements
3. Transaction with Affiliates
The Fund's investment advisor, Wanger Asset Management, L.P., ("WAM") furnishes
continuing investment supervision to the Fund and is responsible for overall
management of the Fund's business affairs. Each Fund pays WAM a monthly advisory
fee based upon average daily net assets at the following rates:
<TABLE>
<CAPTION>
Wanger U.S. Wanger International
Small Cap Small Cap
<S> <C> <C>
- --------------------------------------------------------------------------------
Average Daily Net Assets:
For the first $100 million 1.00% 1.30%
Next $150 million .95% 1.20%
In excess of $250 million .90% 1.10%
- --------------------------------------------------------------------------------
</TABLE>
The investment advisory agreement also provides that WAM will reimburse the
Funds to the extent that ordinary operating expenses (computed based on net
custodian fees) exceed 1.50% for Wanger U.S. Small Cap and 1.90% for Wanger
International Small Cap, of average net assets. WAM was not required to
reimburse the Funds under these agreements for the year ended December 31, 1997.
Certain officers and trustees of the Trust are also principals of WAM. The
Trust makes no direct payments to its officers and trustees who are affiliated
with WAM. Wanger U.S. Small Cap and Wanger International Small Cap incurred
trustees' fees and expenses of $18,214 and $18,237 respectively, for the year
ended December 31, 1997 to trustees not affiliated with WAM.
WAM advanced $100,000 to each Fund in connection with the organization and
initial registration of the Fund. These costs are being amortized and reimbursed
to WAM over the period May, 1995 through April, 2000.
WAM Brokerage Services, L.L.C., a wholly-owned subsidiary of WAM, is the
distributor of each Fund's shares and receives no compensation for its services.
- --------------------------------------------------------------------------------
4. Subsquent Event
The Trust participates in a $250,000,000 credit facility entered into on January
30, 1998 to facilitate portfolio liquidity. No amounts have been borrowed under
this facility.
- --------------------------------------------------------------------------------
5. Fund Share Transactions
Proceeds and payments on Fund shares as shown in the statement of changes in net
assets are in respect of the following numbers of shares:
<TABLE>
<CAPTION>
----------------------------------------
Wanger U.S.Small Cap
Year ended Year ended
December 31, 1997 December 31, 1996
<S> <C> <C>
- -------------------------------------------------------------------------------------
Shares sold 5,806,192 6,137,385
Shares issued in reinvestment of dividend and
capital gain distributions 210,886 5,157
- -------------------------------------------------------------------------------------
6,017,078 6,142,542
Less shares redeemed 991,354 432,817
- -------------------------------------------------------------------------------------
Net increase in shares outstanding 5,025,724 5,709,725
=====================================================================================
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------
Wanger International Small Cap
Year ended Year ended
December 31, 1997 December 31, 1996
<S> <C> <C>
- -----------------------------------------------------------------------------------
Shares sold 2,963,636 4,154,432
Shares issued in reinvestment of dividend and
capital gain distributions 136,747 3,911
- -----------------------------------------------------------------------------------
3,100,383 4,158,343
Less shares redeemed 812,741 212,404
- -----------------------------------------------------------------------------------
Net increase in shares outstanding 2,287,642 3,945,939
===================================================================================
</TABLE>
6. Investment Transactions
The aggregate cost of purchases and proceeds from sales other than short-term
obligations for the year ended December 31, 1997 were:
<TABLE>
<CAPTION>
Purchases Sales
<S> <C> <C>
Wanger U.S. Small Cap $142,999,142 $62,631,734
Wanger International Small Cap 100,450,366 66,643,609
- -------------------------------------------------------------------------------------
</TABLE>
23
<PAGE>
Wanger Advisors Trust 1997 Annual Report
Report of Independent Auditors
To the Board of Trustees and Shareholders of
Wanger Advisors Trust
We have audited the accompanying statements of assets and liabilities, including
the statements of investments, of the Wanger Advisors Trust comprising the
Wanger US Small Cap and the Wanger International Small Cap portfolios, as of
December 31, 1997, the related statements of operations for the year then ended
and changes in net assets and the financial highlights for the periods indicated
thereon. These financial statements and financial highlights are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements.
Our procedures included confirmation of investments owned as of December 31,
1997, by correspondence with the custodian and brokers. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial high-lights
referred to above present fairly, in all material respects, the financial
position of each of the respective portfolios of the Wanger Advisors Trust as of
December 31, 1997, the results of their operations and changes in net assets and
financial highlights for the periods indicated thereon, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
February 4, 1998
- --------------------------------------------------------------------------------
Special Notice
Shareholders Approve New Agreements
At a special meeting on December 30, 1997, shareholders of Wanger U.S. Small Cap
and Wanger International Small Cap voted to approve a proposal that replaced
each Fund's investment advisory agreement with a new investment advisory
agreement. In addition, shareholders voted to ratify the selection of Ernst &
Young LLP as each Fund's independent public accountants. The new investment
advisory agreement took effect on January 1, 1998.
The outcome of the vote was as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Record Date Total Share For Against Abstentions
Share Position Position Voted
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
Wanger U.S. Small Cap 12,178,646.515
- --------------------------------------------------------------------------------------------------------------------------
(A) New Advisory Agreement 12,178,626.748 11,247,335.848 290,440.913 640,849.987
- --------------------------------------------------------------------------------------------------------------------------
(B) Ratification of Ernst & Young 12,178,626.748 11,457,282.030 116,911.628 604,433.090
- --------------------------------------------------------------------------------------------------------------------------
Wanger International Small Cap 7,130,915.743
- --------------------------------------------------------------------------------------------------------------------------
(A) New Advisory Agreement 7,130,897.740 6,605,507.970 129,450.867 395,938.903
- --------------------------------------------------------------------------------------------------------------------------
(B) Ratification of Ernst & Young 7,130,897.740 6,710,729.638 49,496.970 370,671.132
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE>
Wanger Advisors Trust
Trustees
Fred D. Hasselbring
Charles P. McQuaid
P. Michael Phelps
James A. Star
Ralph Wanger
Officers
Ralph Wanger
President
Charles P. McQuaid
Senior Vice President
Marcel P. Houtzager
Vice President
Robert A. Mohn
Vice President
Leah J. Zell
Vice President
Merrillyn J. Kosier
Senior Vice President
and Secretary
Bruce H. Lauer
Vice President and
Treasurer
Kenneth A. Kalina
Assistant Treasurer
Transfer Agent,
Dividend Disbursing Agent
and Custodian
State Street Bank
and Trust Company
Attention:
Wanger Advisors Trust
P.O. Box 8502
Boston, Massachusetts
02266-8502
Distributor
WAM Brokerage
Services, L.L.C.
227 West Monroe Street
Suite 3000
Chicago, Illinois 60606
1-800-5-WANGER
(1-800-592-6437)
Investment Advisor
Wanger Asset
Management, L.P.
227 West Monroe Street
Suite 3000
Chicago, Illinois 60606
1-800-5-WANGER
(1-800-592-6437)
Legal Counsel
Bell, Boyd & Lloyd
Chicago, Illinois
Independent Auditor
Ernst & Young LLP
Chicago, Illinois
This report, including the audited schedules of investments and financial
statements, is submitted for the general information of the shareholders of the
Wanger Advisors Trust. This report is not authorized for distribution unless
preceded or accompanied by a prospectus.
<PAGE>
Wanger Advisors Trust
